Department of Transportation Performance Audit Cash Spending Plan April 2020 Beth A. Wood, CPA, North Carolina State Auditor 1
Performance Audit DOT – Cash Spending Plan Audit Objectives: Confirm Amount DOT Exceeded Plan Identify the Causes of Overspending 2
Performance Audit DOT – Cash Spending Plan Audit Scope: (Session law 2019-251) Budget Adherence by Department, Division, Highway Division Timeliness of Federal Reimbursement Requests Timeliness of Response to Federal Inquiries Controls & Oversight Related to Cash Management, Project Coordination & Delivery, Budget Adherence Effectiveness of Communication & Coordination Effectiveness of Cash Management for SFY 2019 3
Performance Audit DOT – Cash Spending Plan IN MILLIONS CERTIFIED SPENDING FUND BUDGET PLAN HIGHWAY FUND $3,593 $3,593 HIGHWAY TRUST FUND $1,540 $1,540 INTENTIONAL SPEND - DOWN OF CASH $670 AMOUNT PLANNED - FROM BOND PROCEEDS $126 Total: $5,133 $5,929 4 Report - Page 4 – Footnote 1
Performance Audit DOT – Cash Spending Plan Confirmed Exceeded “Spending Plan” by $742M In Millions Expenditure Category Spending Plan Actual Spending Difference % Difference Construction $3,310 $3,434 $124 3.7% Operations & Maintenance $1,596 $2,174 $578 36.2% Other Modes $364 $438 $74 20.3% Other $671 $637 $(34) (5)% Total $5,941* $6,683 $742 12.5% 5 * $5.1B Certified Budget + 670 M Planned Cash Spend Down + $126M Planned Bond Proceeds
Performance Audit DOT – Cash Spending Plan FINDING - DOT Exceeded Spending Plan Due to: Plan Was Not Based on Cost Estimates of Projects/Operations Schedule for FY Chief Engineer’s Office Did Not Monitor Compliance w/ Plan Chief Engineer’s Office Did not Enforce Compliance w/ Plan 2 MATTERS FOR FURTHER CONSIDERATION 6
Performance Audit DOT – Cash Spending Plan Plan Was Not Based on Cost Estimates of Projects/Operations Schedule for FY Preliminary Engineering - $194 M Overage 2019 Estimated Spending Not Based on Cost Estimates of Specific Projects or Operations 2019 Estimated Spending Based on Prior-Year Spending 7
Performance Audit DOT – Cash Spending Plan Plan Was Not Based on Cost Estimates of Projects/Operations Schedule for FY (cont’d) Operations & Maintenance - $578M Overage 2019 Estimated Spending Not Based on Actual Planned Maintenance Projects for the Year 2019 Estimated Spending Based Seasonal Spending Estimates & 10-Yr. Historical Averages Disaster Spending - $246 of $578 Overage Budgeted $50M/yr. Since 2015 8
Performance Audit DOT – Cash Spending Plan Chief Engineer’s Office Did Not Monitor Compliance w/ Plan Spending Plan Not Monitored w/in 14 Highway Divisions Full Fiscal Year’s Allocation Provided Initially 14 Division Engineers Managed Spending However They Chose 9
Performance Audit DOT – Cash Spending Plan Chief Engineer’s Office Did not Enforce Compliance w/ Plan Chief Engineer’s Office Did Not Reject a Division’s Contracts/Unspent Budget Insufficient No Mid-Year Budget Reductions/Borrow Against Next FY Allocation Borrowing Crossed Multiple Years 10
Performance Audit DOT – Cash Spending Plan GS 143C-6-11(b) Requires: Transportation Project funds shall be budgeted, expended, and accounted for on a “cash flow” basis. Pursuant to this end, transportation project contracts shall be planned and limited so payments due at any time will not exceed the cash available to pay them. 11
Performance Audit DOT – Cash Spending Plan RECOMMENDATIONS: Spending Plan Should be Based on Cost Estimates of Specific Projects and Operations Chief Engineer’s Office Should Formally Monitor Each Highway’s Spending On a Regular Basis/Adjust Chief Engineer’s Office Should Take Corrective Actions Whenever Highway Divisions are Overspending Chief Engineer Should Consider Requiring Corrections on Quarterly Basis 12
Performance Audit DOT – Cash Spending Plan MATTERS FOR FURTHER CONSIDERATION MFC 1: Oversight Should Be Improved Managing Billions of Dollars w/out External Controls No Approved Budget/Spend Plan Spending Not Adequately Monitored WHO?? OSBM? Financial Planning 13 Committee? Other?
Performance Audit DOT – Cash Spending Plan MATTERS FOR FURTHER CONSIDERATION MFC 2: $4.8 B Advance Construction Should be Reported & Monitored Currently NO Evaluation of Advance Construction Practices No Detailed Report on Use of Advance Construction No Detailed Report on Outstanding Balance 14
Performance Audit DOT – Cash Spending Plan MFC 2: $4.8 B Advance Construction Should be Reported & Monitored “Some Information Provided – Financial Statement Schedules/STIP Document No Single Document: Describing Advance Construction Benefits, Risks, Beginning Balance, Expenditures, Contract Amounts, Planned Additions, Planned Conversions 15 Ending Balance
Performance Audit DOT – Cash Spending Plan MFC 2: $4.8 B Advance Construction Should be Reported & Monitored Every State Has Access to Federal-Aid Highway $- Federal Highway Administration (FHWA) Annual Limit Per State – “Obligation Authority” 2019 North Carolina’s Obligation Authority - $1.1B State Must Incur & Pay Expenditures Request Reimbursement State Must Meet Annual Obligation Authority to be 16 Eligible for Unused $ Redistributed by FWHA
Performance Audit DOT – Cash Spending Plan 2 Ways to Use Federal Highway Funding Traditional Advance Construction North Carolina Opted to Use Advance Construction to Finance Projects with Federal-Aid 17
Performance Audit DOT – Cash Spending Plan Federally-Financed Highway Projects Traditionally Financed: FWHA Approves Project Obligates Federal Funds (80%) at Start of Contract Construction Begins & Pay Construction Costs w/ State Funds Submit Weekly Reimbursement Requests To FHWA 18
Performance Audit DOT – Cash Spending Plan Federally-Financed Highway Projects Advance Construction Project Approved “Eligible” for Federal Funding No Obligation of Federal $ DOT Adds Federal Share of Eligible Costs to Advance Construction Balance Begins Construction Pays Construction Costs w/ State Funds Some Point in Future Converts Advance Construction Project to Federal-Aid Project & FHWA Obligates Funds DOT Requests Federal Reimbursement 19
Performance Audit DOT – Cash Spending Plan Traditionally-Financed vs Advance Construction Traditionally-Financed Limits Number of Federal-Aid Projects Started Annually Once FHWA Obligates Funds = State’s Obligation Authority State Cannot Start any more Federal-Aid Projects Advance Construction Does Not Require Obligation of Federal funds Projects Approved – Dollars Not Obligated Start More Projects Annually – “Anticipated” to Be Paid w/ Federal Funds Approval by FHWA Subject to State’s Obligation Authority 20
Performance Audit DOT – Cash Spending Plan Current Advance Construction Balance - $4.8 B $4.8 B – Ties to Federal Report of Approved Projects Approved by FWHA, $ Not Obligated According to DOT Balance Represents: $1.3B in Expenditures $706.6M – GARVEE Bonds $604.5M – State Funds – convert & seek reimbursement $3.5B - ??? 21
Performance Audit DOT – Cash Spending Plan More Formal Document Including: Describing Advance Construction Benefits, Risks, Beginning Balance, Expenditures, Contract Amounts, Planned Additions, Planned Conversions Ending Balance 22
Performance Audit DOT – Cash Spending Plan Advance Construction Recommendations: Consider Requiring DOT to Provide Breakdown of All Projects & Associated Contracts in Advance Construction Detailing : Expenditures Paid w/ State Moneys Date of Expenditures Anticipated Date of Reimbursement From FHWA Expenditures Funded w/ GARVEE Bonds Breakdown of Outstanding Bonds, i.e., Amount Outstanding, Anticipated Annual Repayments to be Converted, Term End Date All Other Projects w/ Associated Contracts/Commitments 23
Performance Audit DOT – Cash Spending Plan Advance Construction Recommendations (cont’d): Have Schedule/Breakdown Audited by Office of State Auditor Use the Prepared Breakdown as Starting Point Require the Detailed Information Ongoing 24
Performance Audit DOT – Cash Spending Plan Questions? 25
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